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All things Pharma

The New PPRS Agreement

THE NEW PPRS scheme (Prescription Price Regulatory Scheme) comes into force from the 1st January 2005 with the aim of reducing the cost of drugs to the NHS by 7%. This will have a corresponding reduction on the NHS expenditure on branded medicines giving a £1.8 billion saving for the NHS. There after, there will be no price increase before 31st December 2005.

What is the PPRS set up to do? The scheme is in the common interest of both the Department of Health and the ABPI in ensuring that safe and effective medicines are available to the NHS on reasonable terms. At the same time maintaining a strong efficient and profitable pharmaceutical industry, capable of continued Research and Development so providing new and improved drugs in both the UK and abroad. It is also set to help the NHS, where GPs in the past have prescribed the best product for a condition without thinking about the cost implications.

Which companies will the scheme affect? Your company will be affected! The scheme is designed to run from 2005 to 2010, with a review from either side at 2.5 years. The scheme is voluntary and companies do not need to be ABPI members. Any companies that choose not to become members of the scheme will be subject to section 34 of the Health Act 1999, which states that the government can limit any price charged by a manufacturer for a medicine. This could mean that a company could face a much larger price reduction imposed on them. Companies can leave the scheme at any time and would cease to be a member of the scheme if they are noncompliant. They would be able to rejoin the scheme as long as they had met all its obligations as required.

Which medicines will the scheme affect? All branded licensed NHS medicines with the exception of ‘standard’ branded generics. These are products that are out of patent and the manufacturer/supplier is not the original company and has applied a brand name that is directly comparable to a true generic All branded prescription medicines that have sales greater than £1 million are required to reduce their prices. Where product sales in the UK are under £10 million per year then the first £1 million of sales will be exempt from the price cut.

Which medicines will the scheme not affect? – Branded Generic medicines – Medical devices – New products will have freedom of pricing for new active substances on market entry. – Line extensions that are launched within 5 years of the initial product launch are also exempt.

Implementing the 7% price reduction There can be a standard reduction of 7% across a companies portfolio of medicines that fall within the scheme Scheme members can opt to pay 2% of the price cut by paying the Department of Health, based on estimated sales for the twelve month period with adjustment at the end. The remainder required would come

Modulation This is where a company chooses to reduce its list prices by an average 7% over it’s portfolio. So some products take a greater hit than others. Companies will not be allowed to do this on products where patent expiry occurs between 1/7/04 and 1/1/06, so as not to cause delay or discourage them from entering the generics market. It should also not be implemented to create brand equalisation deals where volumes of medicines sold in at discount could be dispensed against scripts written generically.

Are there any positives of the scheme? The scheme will produce stability within the industry for the next five years, compared to Europe, where recently they have been subjected to a range of price restrictions. For example, Germany has had 16% price reductions recently without any guarantees that more are not to follow. Grant Geddes, Managing Director of Otsuka Pharmaceuticals UK Limited has said “there will be difference of impact for large and small companies. The benefits have yet to be seen or fully realised. The market can not underestimate the stability factor” Most companies are likely to modulate its prices, thereby reducing the costs of brands that are no longer promoted, rather than those give the greatest profit. A company that has huge parallel import sales, could see no local impact by reducing its price heavily for these products and this may then increase home sales. Simon Coope an experienced representative who during the last PPRS worked for Dupont stated “last time I saw little effect in the field.”

What are the negatives of the Scheme? The main debate here lies around large and small companies and the differing effects the scheme will have on them. One of the main driving forces for the scheme was GSK, a company with a large product portfolio and a high turnover. The impact there will be minimal whereas the effects on a smaller organisation will be disproportionate. Richard Barker director general of the ABPI was quoted in saying that “companies may pull out of the UK if they are forced to reduce drug prices”

So, will the new contract stop pharmaceutical companies from hiring of new sales people over the next few years? No. The industry will continue to invest in brands, rather than creaming off profit. The full impact of the scheme has yet to be seen. All companies will look at their drug portfolios, and assess their business as a whole. They will take into account where products are within their life cycle, profitability, parallel imports and their own plans for growth and expansion. You can be assured whilst the effects seen in the field will be minimal the impact at head office will lead to far greater headaches than this year’s Christmas party.

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